$\langle f'(X), X\rangle_t=\int\limits_{0}^{t}f”(X_s)d\langle X\rangle_s.$

stochastic-calculusstochastic-integralsstochastic-processes

I am reading Bass's book on Stochastic Processes (specifically the section about Stratonovich integral). Theorem 12.8 states that for $f\in C^3$ and a continuous semimartingale $X$ we have
$$f(X_t)=f(X_0)+\int_0^tf'(X_s)\circ dX_s.$$

An application of Ito's formula reduces the proof to showing that
$$\langle f'(X), X\rangle_t=\int\limits_{0}^{t}f''(X_s)d\langle X\rangle_s.$$

The book says that since $f'\in C^2$ applying Ito's formula again gives the above result. But, I have absolutely no idea how. If I apply Ito's formula with $f',$ I will get

$$f'(X_t)=f'(X_0)+\int_0^tf''(X_s)dX_s+\frac{1}{2}\int_0^tf'''(X_s)d\langle X\rangle_s.$$

I am not sure how the result follows from here. Any help would be highly appreciated.

Best Answer

You have to use the defining property of the stochastic integral:

$$ \langle Y, \int_0^t X_s\textrm{d}Z_s\rangle_t=\int_0^t X_s\textrm{d}\langle Y,Z\rangle_s $$

Applying this to the above:

$$ \langle f'(X),X\rangle_t= \langle f'(X_0),X\rangle_t+\int_0^t f''(X_s)\textrm{d} \langle X\rangle_s+\int_0^t f'''(X_s)\textrm{d} \langle X,\langle X\rangle\rangle_s=\int_0^t f''(X_s)\textrm{d} \langle X\rangle_s, $$ since $t\mapsto f'(X_0)$ and $t\mapsto \langle X\rangle_t$ are bounded variation processes and thus, their quadratic covariation with anything is 0.

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